EXECUTIVE SUMMARY. 1. Introduction. 2. Theme of State Focus Paper

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1 EXECUTIVE SUMMARY 1. Introduction NABARD prepares district wise Potential Linked Credit Plans (PLPs) which is a step towards decentralised credit planning with the basic objective of mapping the potential for the development of Priority Sector with institutional credit support. The updated projections for , are aligned with the revised guidelines on Priority Sector Lending (PSL) issued by Reserve Bank of India, aggregated at state level and presented in the State Focus Paper (SFP) Through this document an attempt is made to flag the gaps in infrastructure which impede the growth of each sector/ sub sector and also identify the critical interventions needed. To align with the revised PSL guidelines, various activities/ sub-sectors are now grouped under eight broad sectors viz, Agriculture, MSME, Export Credit, Education, Housing, Renewable Energy, Others and Social Infrastructure involving bank credit. The PLP projections of all the districts in the state are aggregated and the total projection assessed as potential for bank credit for stood at ` 1,44, crore, an increase of per cent over the projections made for Executive Summary presents a snap shot of the State Focus Paper , and also identifies the opportunities available and suggestions for improving the credit flow, quantifies gaps in critical infrastructure hindering development, depicts sector specific critical interventions needed for enhancing production and productivity, besides presenting a gist of the banking and state profile. 2. Theme of State Focus Paper Though the share of agriculture in total Gross Domestic Product (GDP) has declined over a period of time in tune with the state of development of the overall economy, the sector still employs around 55 per cent of the total work force and contributes significantly for the food security of the country. Sustainability of the sector depends on the capital formation that takes place. Keeping the importance of capital formation in agriculture sector for its sustainability over a period of time, the theme for State Focus Paper continues to be accelerating the pace of capital formation in agriculture and allied sector. NABARD has been taking various initiatives from time to time for increasing the investment in agriculture and allied sector which include, long term refinance for investment activities, preparation of model schemes and fixing State Level Unit Cost for major agricultural investment activities. To facilitate availability of affordable investment credit to farming community for agriculture and allied activities from Cooperative Banks and RRBs, a Long Term Rural Credit (LTRC) Fund is placed with NABARD by GoI, exclusively for extending refinance for investment credit to Cooperative Banks and RRBs at a relatively lower rate of interest than the normal refinance rates. The extent of refinance is 100 per cent for all thrust areas and 95 per cent for all other diversified purposes. LTRC Fund is expected to give a boost to credit flow to investments in Agriculture and Allied Sectors through Cooperative Banks and RRBs. 2

2 To facilitate capital formation for improving agricultural production and productivity, NABARD extends refinance support to Commercial Banks, RRBs and Cooperative Banks for long-term lending. A new medium-term refinance product for 18 months to 3 years was also introduced to cater the needs of client banks. Refinance at below normal rate is available for specific activities under plantation & horticulture, and to other activities covered in Area Development Schemes under Banking Plan. To provide a further fillip to agriculture term lending, NABARD has identified agency specific Area Development Plans/ Schemes in each district through an intensive consultative process. 3. Karnataka - State Profile Karnataka is the seventh largest state in India with a reported geographical area of lakh ha. which accounts for 5.83 per cent of the total geographical area of the country. The state has 30 districts, 176 talukas and 27,397 inhabited revenue villages with a population of 6.11 crore as per 2011 census. The net sown area is 97.7 lakh ha with the cropping intensity of per cent. The state is blessed with varied agro climatic features which is suited for raising almost all cereals, pulses, oilseeds and commercial crops. The state ranks first in production of coffee, raw silk, coarse cereals and sun flower, second in cooperative milk production, third in production of sugarcane and fourth in production of flowers. The state is major IT and bio technology destination in the country. Some of the path breaking initiatives of the state government to increase farm productivity and to improve farmers livelihood include Bhoomi Bank Integration: After computerisation of all agricultural land records under the coveted Bhoomi Project, the State Government has linked Bhoomi with Kaveri Project of Revenue Department to facilitate both noting of lien on Records of Rights & Encumbrance Certificate. Unified Marketing Platform (UMP): To bring in efficiency and transparency in the agricultural marketing system for efficient price discovery, Rashtriya e-market Services Private Limited (ReMSL), a joint venture SPV between NCDEX Spot Exchange and Government of Karnataka, had launched the electronic Unified Market Platform (UMP) in Karnataka in February Banking / Financial Profile Karnataka state which is known as the cradle of banking in the country has a good net work of 10,074 branches of various banks with per branch population of 6,065 as on 31 March In addition, state has 13,512 ATMs of which 2,231 were in rural 2,485 in semi urban and balance in urban / metro areas. Apart from banks, there are 5,071 Primary Agricultural Credit Societies (PACS) operating in the state which primarily cater to the crop loan needs of farmers. Besides the presence of a good number of MFIs / NBFC in the state enhances the financial access option to the people. The CD Ratio of the state stood at per cent as on 31 March 2015 which hovered around 75 per cent during last 3 years. Prime Minister's Jan Dhan Yojana (PMJDY): Banks in the state have been implementing "Pradhan Mantri Jan Dhan Yojana (PMJDY)" to ensure access to various financial services. The banks in the state have facilitated opening of lakh Basic Savings Bank Deposit accounts as on 13 January Providing banking services in all villages with population above 2,000: All the identified 3,395 unbanked villages in the state have been provided with banking outlets by the Banks, thereby achieving cent percent coverage. 3

3 Roadmap for providing banking services in villages with population below 2,000 : All the identified 23,126 villages having population less than 2,000 have been provided with banking services as envisaged, as at the end September Financial Literacy Centres (FLCs): 133 FLCs are functioning in the state for facilitating creation of awareness of financial services to people. Social Security Schemes: Banks in the state have been enrolling people under the three social security schemes namely, Pradhan Mantri Suraksha Bima Yojna (PMSBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and the Atal Pension Yojana (APY) for the benefit of Savings Bank account holders. 5. NABARD s Development Perspective The growth of Gross State Domestic Product (GSDP), at constant prices, decreased from 7.2 percent in to 7.0 percent in , mainly due to the decline in the growth of agriculture sector from 9.4 per cent to 4.5 per cent. However, the growth rate of industry and services sectors increased from 4.2 per cent and 8.0 per cent respectively in to 4.4 per cent and 8.9 per cent respectively in Out of the total lakh ha. of geographical area of the state, 51.4 percent was under crop cultivation and 16.1 percent was under forest per cent of the gross sown area was under irrigation and 19.9 percent of the net sown area was cultivated more than once. With rising population, the number of farm holdings in the state increased from 35.5 lakh in to 78.3 lakh in recording an annual rate of 3.0 per cent, but during the same period, the annual increase in operational area was only 0.2 per cent from lakh ha. to lakh ha. As a result, the per capita land availability decreased from 3.2 ha. in to 1.5 ha. in When the per centage of number of holdings held by marginal farmers out of total holdings increased from 30.4 per cent in to 49.1 per cent in , the per centage of operational area in favour of marginal farmers increased from 4.8 per cent to 15.2 per cent. As a result, the per capita area held by marginal farmers, which was 0.51 ha. in declined to 0.48 ha. in As per 70 th round NSSO Survey relating to agriculture, about 77.3 per cent of the agricultural households in Karnataka were indebted as against national average of 51.9 per cent. At national level 45.9 per cent of cultivator households and 28.8 per cent of non-cultivator households were indebted while in Karnataka, their respective shares were 55.7 and 43.6 per cent. Average debt of farmer households in the state was ` 83,987 against national average of ` The total outstanding under Priority Sector advances by banks in Karnataka stood at `1,84,503 crore as on 31 March 2015, against `1,58,455 crore as on 31 March 2014, recording an increase of 16.4 per cent. Total agricultural advances by the banks at `87,860 crore constituted 19.2 per cent of the total advances against the mandatory level of 18 per cent stipulated by RBI. 4

4 The per account agricultural advances outstanding as 31 March 2015 in respect of SCBs, RRBs and Cooperative Banks were at `1.64, ` 0.72, `0.43 lakh respectively. The CAGR in credit outstanding per account in respect of Commercial Banks, Regional Rural Banks and Cooperative Banks were in the order of 2.8 per cent, 10.8 per cent and 3.8 per cent. Though the CAGR in number of agricultural loan accounts was maximum in case of Cooperative Banks, the CAGR in relation to the amount of credit outstanding per account was the minimum which indicated that while Cooperative Banks were focussing on credit widening, SCBs and RRBs were going for credit deepening. To address the problems encountered by small and marginal farmers, NABARD has taken the initiative to promote Farmer Producer Organisations and several institutional models are being tried to integrate farmers with the value chain and facilitate promotion of 2,000 FPOs in the country. The Self Help Group - Bank Linkage Programme (SHG-BLP,) pioneered by NABARD, is acclaimed as one of the largest micro finance programmes in the world. A cumulative number of 7.3 lakh SHGs have been credit linked to various banks as on 31 March 2015 with a total loan outstanding ` crore (as on ). Transforming members of SHGs into micro entrepreneurs through capacity building is being addressed by NABARD. The scheme of financing JLGs was introduced by NABARD in as a pilot project is adopted as a popular tool to finance people who do not have collateral to offer. During , 29,468 JLGs have been promoted and extended credit to the extent of ` crore by the banks. NABARD as a National Implementing Entity (NIE) for (i) National Adaptation Fund on Climate Change (NAFCC, GoI), (ii) Adaptation Fund - United Nations Framework on Climate Change (UNFCC) and (iii) Green Climate Fund, would be facilitating assessment of the key challenges on climate change and enable addressing the challenges in partnership with stake holders. 6. Credit outlay for The potential assessed for bank credit for for various sectors under Priority Sector is pegged at ` 1,44, crore. Of the total projection, per cent is assessed for Agriculture and Allied Sector, 14 per cent for MSME, 6.61 per cent for Export Credit, 4.57 per cent for Education, 7.19 per cent for Housing, 0.61 per cent for Renewable Energy, 5.57 per cent for Others and 1.27 per cent for Social Infrastructure. Sub-sector wise details of the projections are presented in Chapter 4 of the document. Crop loan projection for the state stands at per cent. The important sectors for the state having high impact on income generation are Plantation & Horticulture for which projection of `5, crore followed by Dairy Development sector for which a projection of `3, crore. Infrastructure gaps and critical interventions required for development of the sector is indicated in each sub sector. Broad sector / sub-sector wise projections are presented in the tables at the end of the executive summary. 7. NABARD s Initiatives a. Area Development Plans/ Schemes To extend the benefit of economies of scale for all the stakeholders, especially to the large number of small and marginal farmers, taking into account the locational and other advantages of different areas / district, 5

5 the Area Development Plans / Schemes have been identified in PLP A total of 43 ADPs have been identified in PLPs , involving a total financial outlay of ` with bank loan of ` crore. The major activities identified are Dairy Development, P&H-Polyhouse, Sub-surface drainage, Small ruminants, P&H (other than poly house), Ornamental fish culture and integrated farming, etc which are detailed in Chapter 6 of the document. Implementation of these projects will result in enhanced livelihood options for a large number of SF/MF, especially in the backdrop of successive droughts, farmers distress, etc. affecting the state. b. Banking plan for treated watershed areas To sustain the potential created for investment credit opportunities in the watersheds supported under Watershed Development Fund, NABARD has prepared banking plans for watersheds which are completed. c. Rural Infrastructure Development Fund (RIDF) Interventions RIDF aims at providing low cost fund support to State Governments, State Owned Corporations for quick completion of on going projects relating to medium and minor irrigation, soil conservation, watershed management and other forms of rural infrastructure. The fund today covers as many 34 activities which are broadly classified under three categories as (i) Agriculture and related sector (ii) Social sector and (iii) Rural connectivity. In Karnataka, so far 37,597 projects have been sanctioned under RIDF with a total RIDF assistance of ` 10, crore. The sector wise details are given in Table No. 1 Table No. 1 Sr. No. Name of the Sector No. of projects Amount (` crore) 1 Agriculture and allied projects 4, Social sector projects 17,215 1, Irrigation projects 4,747 2, Rural roads and bridges 11,144 5, Total 37,597 10, The state has thousands of ongoing projects in various stages of implementation, under RIDF. d. Critical infrastructure The critical interventions required for creating a definite impact on development of each district are captured in the Potential Linked Credit Plans. Looking at the importance of infrastructure gaps the investment required are categorized into last mile incomplete projects, projects having large impact on production / productivity, value addition / post harvest management and Rural Connectivity as indicated in Chapter 4 of the document. The Prioritised Resource Requirement for Critical Infrastructure needs assessed for Karnataka State is `2, crore for Areas of concern & suggestions Some of the major issues faced by agriculture sector in Karnataka are : Area under agriculture is dwindling and no perceptible increase in crop productivity Declining size of average land holdings and dependence on rain-fed farming Slow pace of modernization in agriculture and slow pace of crop diversification Increasing risks in agriculture Bridging yield gap, addressing adverse price fluctuations, deepening of risk mitigation mechanisms, providing for post-harvest management and value addition, etc. are the key issues in agriculture sector with particular focus on improving drought proofing measures and farm productivity in dry land areas 6

6 In the backdrop of an unprecedented spurt in reported cases of farmers suicides in Karnataka during , NABARD, Karnataka Regional Office conducted a quick study to understand the possible causes and to suggest suitable policy interventions for reducing the agrarian distress. Some of the points emerged from the study include: To supplement the income stream of marginal farmers for maintaining a respectable livelihood they need to be provided incentives for taking up additional income generating activities in allied and nonfarm sectors. Farmers growing crops in other s land taken on lease may be provided with Loan Eligibility Card as in Andhra Pradesh for accessing credit from banks. Farmers who raise crops in their own land, but do not have the title of the land in their own name are not in a position to avail loan from bank for raising crops. Such farmers may be issued Temporary Occupancy Certificate, which would enable them in accessing bank credit. Strengthening rural infrastructure, promoting watershed concept, improving health infrastructure and social security measures would help in mitigating agrarian distress. Proper nurturing of the Self Help Groups, Joint Liability Groups, Farmers Clubs and Farmers Producer Organisation would be useful in creating awareness on crops, markets, technology, financial discipline, family budgeting and prudent use of credit among the farming community. 9. The way forward NABARD in its endeavour to facilitate sustainable agriculture and integrated rural development, in partnership with all stake holders, is making efforts to address some of the critical issues through a multipronged strategy broadly covering: Enhancing income levels of farmers and creation of livelihood opportunities through various credit and non-credit initiatives. Providing long term refinance from LTRC fund to Cooperative Banks and RRBs to facilitate enhanced capital formation in agriculture. Formulating and operationalizing Area Development Plans for increasing agriculture term lending for accelerating the pace of capital formation in agriculture. Facilitating effective and holistic financial inclusion. Facilitating formation of Joint Liability Groups and Farmer Producer s Organisation as a mechanism for strengthening the agriculture value chain and supporting agricultural development. Institutional development initiatives aimed at bringing vibrancy in the functioning of Cooperatives and RRBs. Facilitating prevention of depletion of natural resources through climate adaptation / mitigation measures. Facilitating provision of affordable credit for infrastructure works in food parks and food processing units to be setup in designated food parks. 7